Cablegate: Update On Nigeria's Economic Reforms

This record is a partial extract of the original cable. The full text of the original cable is not available.

220334Z Dec 04




E.O. 12958: N/A

1. Summary. Minister of Finance briefed officials of the
donor and diplomatic communities December 16 on the progress
of policy reforms in Nigeria. She explained why Nigeria's
economy is in bad shape, mentioned the remedies she has
prescribed, and pointed to the improvement to date. The
minister's briefing was helpful, among other reasons because
it showed that USAID is pursuing programs that can sustain
necessary reforms. End summary.

2. Minister Ngozi Okonjo-Iweala began her presentation by
citing reasons why the Nigerian economy is in bad shape,
including its slow growth performance, declining
productivity, and increased poverty rates. In terms of GDP
per capital and other development indicators, the country is
much worse off now than it was in 1980. The Minister
attributed much of the economic decline over the past 25
years to poor economic management, including high fiscal
deficits, institutional decline both in terms of neglect of
infrastructure and maintenance, and decline in the quality
of the civil service due to harsh military rule. The oil
boom era saw the emergence of widespread, deep and embedded
corruption. When oil revenues declined, poor public
expenditure management led to high fiscal deficits, and
current account imbalances in turn led to an increased debt
burden and decreased investor confidence.

3. Ngozi stated that according to the latest World Economic
Forum survey, the state of the infrastructure is now the
number one issue of concern of private sector agents in
Nigeria, followed by corruption, and then inadequate

4. Ngozi briefly mentioned NEEDS (National Economic
Empowerment and Development Strategy) and its six priority
areas of reform: economic management, governance and
accountability, public service reform, infrastructure,
privatization and liberalization, and public expenditure
reform. The minister then highlighted the progress of
policy reforms in the following areas:

(a) Macroeconomic stability. The government is on schedule
to meet a target of a three percent of GDP fiscal deficit in
2004 and is largely on target in monetary policy,
controlling the money supply and reducing inflation from 19
percent to 10-11 percent. Inflation will not have dropped
to eleven percent by the end of 2004, but from September
2003 to 2004, inflation was nine percent. On the domestic
and external debt issue, the government wants to improve its
access to the domestic bond market rather than to access CBN
overdraft resources, and to consolidate foreign debt with
creditors and reschedule the debt service payments.

(b) Anti-corruption, transparency and accountability. The
framework for handling these issues includes the due process
requirements, the Extractive Industries Transparency
Initiative (EITI), the G-8 transparency initiative, and the
Economic and Financial Crimes Commission (EFCC). Nigeria's
Independent Corrupt Practices Commission (ICPC) has 55 cases
pending before it. While the ICPC has 500 people in
custody, the Commission has obtained only one conviction.
On legal and judicial reform a draft strategy has been
written and will be presented to the economic team.

(c) Public expenditure reforms. Work continues on budget
formulation, implementation, and monitoring. On
implementation, the Ministry is focusing on paying down
contractor arrears; $40 billion of contractor debt needs to
be paid for prior construction projects. Ngozi said Bauchi,
Cross River, and Enugu states have initiated SEEDS (State
Economic Empowerment and Development Strategy) development
plans. Also, the government is moving forward on
legislation to lock in reforms and consolidate good
governance practices and behavior, such as the Fiscal
Responsibility Bill, a procurement bill to lock in the Due
Process policy, a tax reform bill, and a bill on EITI on oil

(d) Public revenue reform including tax reform, customs
reform, and tariffs. The ministry is drafting legislation
to lower tax rates and streamline tax administration
procedures at the federal and state levels; the UK and the
UNDP is supporting these efforts. Nigeria is also moving
toward an incentive driven system of tax collections; for
example, the Federal Inland Revenue Service and the Customs
Service will be able to keep a percentage of the revenues
they collect. On customs reform, work has just begun and
has a long way to go, at least two to three more years of
work. On trade reforms, the Minister mentioned the
prospective harmonization of the tariff structure with that
of the Economic Community of West African States, and the
phase-out of certain import bans by January 2007.

5. The Minister concluded by reiterating the importance of
infrastructure and Nigeria's huge infrastructure investment
needs, especially electric power, roads, and water.

6. About 50 donor and diplomatic officials attended the
Minister's hour-long presentation. USAID and Embassy econ
officers attended the event. This report should be credited
to USAID's advisor on private sector affairs.

7. Comment. Ngozi presented a good summary of where the
government is in major national-level reform areas. Several
directly relate to what USAID wants to do; namely, continue
work on the national budget process, and extend that work to
the state level; tax reform; customs and trade. Significant
work is being done on the budget and, to a lesser extent, on
tax reform, but customs and trade reforms are lagging. From
our perspective, the latter present USAID opportunities to
work in new areas that the donor community is not
supporting. The lag in trade and customs reforms is a
challenge, as it calls for answers why such reforms have not
been initiated (corruption, political will?). Regarding
trade, Ngozi mentioned only that the GON will eventually
harmonize its tariffs, will eliminate some bans, and will
consider redesigning some export incentives. She said
little about comprehensive trade capacity building that
USAID could build upon, maybe because trade and export
promotion fall under other ministries. Recently, USAID was
given copies of a national export promotion strategy
prepared by a consultant to the Nigeria Export Promotion
Council. The strategy has elements that USAID might support
through its planned "REFORMS" activity or with additional
TRADE Initiative monies. REFORMS will be a new economic
policy reform and private sector development program. For
the uninitiated, REFORMS stands for Restructured Economic
Framework for Openness and Macroeconomic Stability, and
TRADE for Trade for African Development and Enterprise.


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